Nearly a year ago, Sam Peters, co-manager of Legg Mason Capital Management Value Trust, told Financial News he was bullish on prospects for broadly-based US finance stocks, optimistic that US housing would recover and sanguine on prospects for the US economy.

Peters was more upbeat than his peers. And he ended up on the right side of the bet. Towards the end of the year, the S&P 500 index is up 12.9% and, barring a nightmare after Christmas, it looks likely Value Trust will beat the index after rising 15%, before fees, in the year to date.

This would make a pleasant change from the previous five years, when former co-manager Bill Miller suffered a total drop of 40% against a 1.24% fall in the S&P 500.

This time round, there is no shortage of sanguine views over prospects for the equity market, due to arguments that bond prices are overcooked and that the global economy will improve. In his December newsletter, Legg Mason director of research Randy Befumo argued worries about the US fiscal cliff were overdone, and shares worth owning: “Home prices and their ‘wealth effect’ likely explain recent gains in consumer confidence, which came in the face of downbeat coverage of the fiscal cliff and continued gridlock in Washington.”

Bob Turner, founder of Turner Investments, is even more upbeat on equities, arguing that economic recovery, cheap ratings and a long-term history of outperformance will boost their value.

He concedes equities have gone through a period of 13 years of underperformance and volatility since the start of 2000, reducing annualised returns to a woeful 1.6%. But this has made investors uncommonly anxious.

This can damage your health, as well as your wealth. For proof, Turner turns to research by John Coates, a trader-turned-neuroscience research fellow, who has studied the effects of financial gains and losses on brain activity.

According to Turner: "He found that losing money floods the body with cortisol, a hormone that is released in the brain in response to stress. Cortisol can contribute to investors making cautious, highly conservative decisions and being wary of risk generally.”

Related

On this argument, investors are continuing to be anxious because they are anxious. Logic has nothing to do with it.

This week brought news of a marginal rise of 0.4 to 80.9 in State Street's institutional confidence index. Good news? Not entirely.

Co-founder Kenneth Froot, a Harvard university professor, has less incentive to be upbeat than equity investors like Turner. He says: “Global institutional investor confidence remains weak as institutions continue to shy away from equities. In the past year institutions have bought assets directly linked to a reduction in European tail risks, such as peripheral bonds and European banks. However, there is little evidence that institutions are interested in rebuilding core equity allocations in a broad-brush manner to previous levels.”